Breakout

Is the S&P 500 Bounce Off 1,500 Sustainable?

Breakout

After touching a fresh five year high, "the market got very weak very quickly" last week, says Kenny Polcari, director of NYSE floor operations for O'Neil Securities. Stocks not only posted their biggest 1-day percentage decline of 2013, but on a 2-day basis, the midweek retreat was the sharpest in more than 3 months.

Even so, the give back was small, the retreat contained --the S&P 500 fell 0.3% for the week, snapping a 7-week positive streak.

"People are in fact concerned sequestration is going to be at the end of this week. What are we going to do? Are we going over the edge? Is the Fed pulling out? There are still all these issues out there that need to be discussed and that's really going to keep the cap on," says Polcari.

As much as this veteran floor broker sees support at 1490 and is not expecting a full scale sell-off, heavy volume on those two down days has him nervous. "That's what you should be concerned about," Polcari points out, adding that if we break support at 1490, the next real support is in the 1460 area, which would be another 2% down and roughly 4.5% below the recent peak of 1530 hit last week.

At the same time, Polcari predicts that things will likely stall around these levels, until sequestration and Fed policy issues are cleared up - at least a little.

"I am not at all expecting a correction like 10-15%," he says, noting that "there's way too much money out there" to permit that degree of a washout. To that point, if stocks do indeed muster the strength to go higher, Polcari will need to see that big volume come back again.

"You want to see that same increase in volume on up days to send a signal that investors are comfortable taking a shot," he concludes.

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